Analyzing “Care, Custody or Control” for Preservation and Production of Electronically Stored Information

A party has an obligation under the Federal Rules of Civil Procedure to produce materials — including electronically stored information (“ESI”) — within their “care, custody or control.” Rule 34 of the Federal Rules construes this to mean either “the legal right” or “the actual ability” to obtain the materials; and New York courts have broadly interpreted this obligation to extend to documents and materials that a party has the “right, authority, or practical ability to obtain.” See In re NTL, Inc. Securities Litigation, 244 F.R.D. 179, 195 (S.D.N.Y. 2007).

The care, custody and control standard is particularly difficult to apply, however, when ESI is held by a non-party that may be a corporate affiliate, a subsidiary (or parent), or some other separate entity that, for whatever reason, has relevant information that may be obtainable by the party. This problem becomes even more acute if the third-party entity is located overseas. Recent cases have touched upon these problems.

One such decision is Mt. Hawley Insurance Co. v. Felman Production Inc. v. Industrial Risk Insurers, et al., Case No. 3:09-cv-00481 (N.D. W.V. August 19, 2010). In Mt. Hawley, Magistrate Judge Mary Stanley ordered the plaintiff to produce documents from the files of nine individuals who were employed by separate, third-party companies. Some of those companies were located overseas, thereby raising concerns about foreign privacy laws as well. Canvassing the law on “care, custody, or control,” Judge Stanley held that the following questions should be analyzed in order to determine a party’s obligation to collect information from non-parties:

• Is there a “commonality of ownership” between the entities or, in the case of a parent-subsidiary relationship, what is the “parent’s ownership share” in the subsidiary? The more ownership interests can be demonstrated, the more likely “control” will be found.
• Is there an “interlocking management structure” between the entities?
• Are the entities in reality “operated as one?”
• To what extent does the party entity exercise a “degree of control” over the other entity’s officers, directors and employees, and to what extent do these individuals overlap on boards or within management?
• Does the party routinely access documents from the third-party as part of their ordinary business practices?
• Is there an agency relationship between the party and non-party entity?
• Does the non-party have some “connection to the transaction at issue?”
• Will the third-party entity receive “the benefit of any award in the party’s case?”

Analyzing these questions led Judge Stanley to order plaintiff to produce documents from the files of nine individuals connected with the transaction and who exercised control over the plaintiff’s operations, even though the individuals were located at other companies. These individuals were “intimately involved in decisions regarding” plaintiff’s operations (Order, p. 19) and “custodians of documents and ESI relating to [plaintiff] and the parties’ claims and defenses.” (Order, p. 23).

Mt. Hawley is a good reminder to litigants that the obligation to collect and produce information can go well beyond that contained within one’s own company files. When analyzing whether to issue litigation holds, preserve information, and ultimately collect and produce materials, careful thought must be given to which third-parties are within the producing party’s “care, custody or control.” Failure to examine this issue early in a litigation, especially when multiple entities are likely to have relevant ESI and other information, can lead not only to potential spoliation claims for sanctions from opposing counsel, but to strained business relationships between entities and individuals who have ongoing and close business relationships.